HeartWare International's CEO Presents at UBS Global Healthcare Conference Transcript

HeartWare International (NASDAQ:HTWR)

UBS Global Healthcare Conference Call

May 20, 2013 11:00 a.m. ET

Executives

Chris Taylor – VP, IR & Corporate Communications

Doug Godshall – President & CEO

Analysts

Rajeev Jashnani – UBS; Analyst

Chris Taylor

Hello, and thanks for joining us today. Thanks to those of you who are also listening in on the web.

So despite heroic efforts this morning, Doug Godshall spent about three hours at Logan Airport dealing with the fog, and so he is a couple blocks away. But due to time, we had better get started and, hopefully, he will make a spectacular entrance it just a couple of moments. He’ll be here for the breakout, too. So, the presentation includes some forward-looking statements.

At HeartWare we like to say that we are leading a small revolution. Today more than 3,000 patients have received the HeartWare ventricular assist system to treat their end-stage heart failure. And we have more than 200 customers around the globe – 77 in the US and 116 outside the US.

We have a compelling portfolio of next-generation devices, which will show you, and we have an innovative team, both in Miami Lakes, Florida; in Framingham, Massachusetts; and different parts of the world that are helping to drive innovation and growth. And we also have the resources, thanks to many of you in the room, to help drive growth.

This chart shows our revenue growth over the recent years as well as, in the gray, the Q1 results. 2012 revenues of $110.9 million represented a 34% increase over 2011. In Q1, we had an 87% increase over Q1 in 2012, posting $49.2 million in revenues. And including proceeds from a financing that we conducted in the first quarter, we ended the first quarter with $229 million in cash and cash equivalents.

Most of you know about the HeartWare ventricular assist system and its attributes, but it is a miniaturized, implantable blood pump. It’s designed to be implanted adjacent to the heart in the pericardial space. It's a full support device that provides up to 10 liters of flow per minute. It's a centrifugal design, continuous flow, has a thin, driveline cable that exits the patient's abdomen.

The two primary benefits is that it is smaller than devices that have been in the market previously and, therefore, it can be implanted right into the heart itself. We say adjacent, but it's in the pericardial space. And that eliminates the need for the carving of a pump pocket in the abdomen as is required with existing devices.

Thoracotomy implant is something that you’ll hear us talk about and the small size of the device allows surgeons to sometimes avoid the full sternotomy, choosing instead to go through the rib cage, implanting the device in a less invasive manner.

We were approved in the US in November of last year and our rollout seems to be proceeding quite nicely and we’re ahead of the schedule that we outlined at that time. There were 50 clinical sites in the US that were a part of our study. Those 50 clinical sites were first converted to commercial sites, and we did that in the first few weeks post approval. And then, what we said we would do is approach the next-largest 25 sites in the US and proceed through training with those sites, and then move for the fourth quarter, post approval, to the sites that are the fourth quartile sites, kind of 75 to 100.

And so, within five months we achieved what we had hoped to do in six months. We had trained – as of our last call for Q1 results, we had trained 27 new sites and we had even included in that training some pediatric sites, which helps to expand the market because of the size of the device.

We did want to emphasize the fourth bullet there is that the adoption during the quarter represented broad usage and that no one site had done dozens and dozens of cases. In fact, only two sites had done more than 10 implants during Q1. So, our goal for the remaining part of the year is to get to the next set to make the top 100 all trained and capable of doing implants.

This slide shows a tiered look at the different clinical studies that we’ve undertaken for the HVAD. We did a CE Mark study in Europe of 50 patients. And then, we concluded a bridge-to-transplant study in the US with 140 patients; had four different tranches of CAP patients for bridge adding another 232 patients. And then, last May completed enrollment in our destination therapy study for ENDURANCE.

Then, following approval for bridge, we began to enroll patients in a post-approval study. That post-approval study is underway. The data is being gathered by Intermax and it represents 600 HVAD patients, as well as 600 HeartMate II patients. That bar on this table may represent the patient population next available to us for data that we can present to investors, as well as to the medical community.

We’ve talked also about approaching FDA for a DT CAP or an additional patient cohort for the destination therapy marketplace. And Doug outlined in our webcast last week that we had submitted FDA the protocol for that patient cohort and that we hope to hear sometime in the May/June time frame FDA response to that.

The reason that we are approaching this DT population with a slightly different protocol is to work to add mean arterial pressure monitoring, something that's part of our bridge-to-transplant label. We wanted to add to the protocol some monitoring to help keep patients' blood pressure in line to also aid in the reduction of strokes. And while most of the patients do very well with devices in this category, we work to eliminate any outcome that is suboptimal and so what we are focusing on now is to reduce the stroke rate.

This chart shows the unit growth over the recent years, both in the US, represented by the dark blue, and the international space, represented by the aqua. And you see that as we gone through 2009, 2010, 2011, and 2012 growth has been pretty significant. Q1, the furthest bar on the right, represents a balance of – for our company, about 50% international and about 50% OUS.

Our follow-on device is called MVAD. For lack of a better descriptor, the M is miniaturized. It's about a third of the size of our HVAD. It's also designed to provide full support to the patient, but it's a little more flexible in that it can be turned down to provide partial support as well.

This pump, while the HVAD has been implanted via thoracotomy, this pump and its size allows it's designed specifically for a thoracotomy implant. We are planning to do first-in-man studies in the next – we said in the May/June time frame and then commence later in the summer a CE Mark study.

This is a side-by-side comparison to show the different pumps. And you can see how much smaller the face of the MVAD is on the right compared to HVAD. We’re very excited to begin the studies. It’ll be –the CE Mark study will be a 63-patient study at nine centers outside of the US.

As part of the MVAD study, we’re using – maybe we can o to the next slide? Thanks. As part of the MVAD study, we’re rolling out a new controller; we call Pal. It’s peripherals for an active lifestyle. And this controller will first be used in our CE Mark study and then we’ll move it into HVAD patients in the US later this year or early next.

It has a touch-screen technology that allows patients to see different output by touching the top of the screen and the batteries click in and out to make it easier, especially for older patients. So, we’re very excited about this. Some of you may have seen our working prototype for MVAD paired with Pal at ISHLT in Montreal a couple weeks ago. So we’re very excited to begin to do the clinical work on this new version.

Next slide, please. Part of the software that goes into the Pal and MVAD is more advanced than what we have had with HVAD, allowing for some pulsatility. And so, this shows some of the software to allow the patient's system to have a brief pause. And the intent there is that it could help reduce G.I. bleeding, so we’re excited to roll pulsatility through what we’re calling qPulse into MVAD.

Looking at other parts of our pipeline, following MVAD and some of you have seen data presented on what we are calling Longhorn. This device is also using the MVAD impeller system, so an axial flow pump, but this is designed to be implanted directly across the apical valve, the atrial valve, so its transapical and it goes directly into the heart. And the animal work for this pump has been demonstrating even quicker implant times, so as low as 30 minutes from skin to skin.

And in the back of the room, the star of the show, Doug Godshall, has arrived with police escort, I'm sure. So, I –be be happy to turn this over to you to let you talk about the pipeline and bring it home. Thanks.

Doug Godshall

Thanks, sure. Yeah. That’s good. Thanks, Chris. I apologize that we’ll now lose all the momentum that Chris has built, but I guess it's all about the entrance. I apologize for the weather at LaGuardia and various other travel snafus.

I am Doug Godshall, by the way, for those who I have not met yet. As I'm sure Chris was just describing, we are very enthusiastic about our pipeline and what the MVAD is enabling us to do in terms of considering opportunities for our pipeline.

Once we confirm that the MVAD, which is pictured in the lower left-hand corner, works well as a core pumping configuration, because of the versatility of that platform, it has enabled us to start thinking about different patient populations that a more – that different implant approaches will facilitate. And the middle is what we call the Longhorn, which I will show another picture of shortly, and that looks at patients who are elderly, sick, or poor surgical risks.

Based on all of our preclinical implants, it's about a 30-minute skin to skin procedure, so this is the patient population that we generally try to avoid with current VADs because we don't think they’ll survive the surgery. And the scale of that population should be and could be quite significant.

Perhaps the largest segment that has intrigued the VAD world for a long time but we’ve yet to really figure out exactly how to approach is the less sick, or Class III, patient population. They don't need as much support but they need support.

What they don't accept is some of the morbidity associated with the current technologies. They don't need six liters of flow, but they probably need three or four, and yet we have to have a dramatic reduction in post-operative adverse events, short-term and long-term, or else it’ll be difficult for them to consider the trade-off. If I'm not that sick, what kind of complication rate would I tolerate?

So, we think the combination of both some very intriguing implant approaches we’re working on with the MVAD, both internally and through some collaborations that we have established, as well as the introduction of a transcutaneous energy transfer, or TET system, pictured in the lower right-hand corner, which we are doing with a group out of Germany called to Dualis. Those two, when combined, we think will really crack open the very sizable, “less sick population”. And Chris already showed you the picture of Longhorn; I just realized it was in the prior slide, so as Chris said.

Each year, we try to put together a list of what we think we’re going to accomplish in the year ahead. And each year, we are amazed at how long the list is. We always feel like we have accomplished a lot and yet there's so much more to do. We hope to penetrate our first 100 sites in the US, commence our CE Mark study of the MVAD soon, as well as our first-in-man, which will probably be two different phenomenons.

First, we'll get a few implants under our belt and then start our pivotal trial. Our new controller we are extremely enthusiastic about. Really considers the patient and puts them at the center of the experience.

We are quite optimistic about getting a destination therapy CAP cohort started in the not-too-distant future, pending FDA approval on the protocol that we submitted recently. HVAD approval in Canada is pending. The TET I mentioned; the next revision of that, taking into consideration all the things we’ve learned in the last chronic implant study we did last year, will take place later this year.

We had a series of thoracotomy studies that we are looking to embark upon. The first is likely to be a US-based registry that we initially were going to do as a physician-sponsored IDE, but the more we looked into the burden of a multicenter trial run by a physician, it was just asking a bit too much of them. And we were going to have to do all the work to support them anyway, so we’ll be putting in our own IDE very soon. And the enthusiasm for thoracotomy is encouraging, and I think people are beginning to recognize that if they can reduce blood loss, reduce hospital stay, manipulate the heart less as they are doing in Europe that hopefully we will see the benefits of that less invasive surgical implant and the small size of the HVAD really facilitates that procedure.

We’re also looking at pursuing right heart support and pediatrics, probably under an HDE configuration. That's our plan and that's just avoids a trial. It's essentially an approval for the indication because of a humanitarian exemption. As mentioned, the Longhorn is making good progress and hopefully by the end of this year the next big step will be going to GLPs, which is the final thing we do before clinical implants.

The last on the list is but certainly not least, is to get our Japan study underway in Japan and we should both start and complete enrollment. We’re in the finalizing sort of scale of study stage with Japan at this juncture, and we do expect that – thanks to the work that Thoratec will now be doing – that Japan should be a very sizable VAD market in the very near future.

So, again, apologies for being a bit tardy to the podium, but thanks for your patience. And I look forward to taking questions. I think we have a breakout, but you may have questions in the next four minutes and 11 seconds that I have left.

I couldn't miss a chance to see you, Rajeev.

Question-and-Answer Session

Rajeev Jashnani

Yes, I'm sure. Your market share is something that is obviously in focus and I think the competitor in the market is talking about coming out of the first quarter and seeing stabilization in the market share.

I'm sure it's not that black and white, but maybe you could give us your perspective in terms of whether you gained share relatively quickly and what opportunity there is to continue to gain share at the centers you are already in. So obviously you’ll expand the number of synergy and pick up some share there, but maybe some perspective on the base. Thanks.

Doug Godshall

So, obviously, if I were striving for stability, then it would be time to get somebody else up here at the podium. So, I’d say we have a wide range of share positions in our current sites. We have sites that have done one or two cases. We've had sites who have done over 10 in the past quarter. Just a couple of those, but it's reasonable to assume that at those sites we did better than at the sites where we did one or two, unless they had almost no volume.

And I think one of the things that – at some of those sites that have done one or two – is they’re just trying to figure out, “What do I do now that I have a choice? Never had a choice before; how do I talk to the patient about a choice because it's not a trial?” It's different when you present a trial to a patient versus two approved devices.

And at least some of those sites have communicated to us that they’re getting sort of up the curve of what it's like to use both devices and offer both devices for – in the same indication, in the case of bridge, or when you have devices that have two different indications, as we are in that position right now.

So, I certainly hope that we do better at some of those sites than we did in the first quarter. Not because we are crestfallen about how we did, but it feels like we were laying the groundwork for future growth and that's certainly the way our sales and marketing team is approaching it. And we’re generally encouraged by the widespread traction that we’re feeling.

So I'm not going to forecast a future share position, obviously, but we were encouraged by what we saw at ISHLT with the widespread enthusiasm and sort of communication of those who – between those who use the device a lot and those who were just coming up the curve in utilization. So, hopefully, that bodes well for broader utilization.

Rajeev Jashnani

Great. I think we only have one minute left, so you probably have a lot more to talk about in the breakout session and we can follow up there.

Doug Godshall

Thanks, everybody.

Rajeev Jashnani

Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!